GST/HST Memorandum 17-14 Election for Exempt Supplies June 2023

Requirement for LFI to be a member means that it must be registered

5. In order for a member of a closely related group to exist, in addition to other requirements, every person in the group must be a registrant. A special rule in paragraph 240(3)(c) permits a listed financial institution resident in Canada to voluntarily register for the GST/HST where it would not otherwise be required or eligible to be registered because it only makes exempt supplies. For example, if each corporation in a group of corporations is closely related to each other corporation in the group within the meaning assigned by section 128 and all the corporations but the one listed financial institution in the group are registered, the group would not be a closely related group as defined in subsection 123(1). However, by registering for the GST/HST, the listed financial institution would create a closely related group for GST/HST purposes. Once registered, the listed financial institution and the other corporations would form a closely related group and would be eligible to make the section 150 election with each other.

Requirement that election corporations be resident

13. Besides being closely related, corporations wishing to make the election under section 150 must also be members of a closely related group of which a financial institution is a member. "Closely related group" is defined in subsection 123(1) to mean a group of corporations each member of which is a registrant resident in Canada and is closely related, within the meaning assigned by section 128, to each other member of the group and for the purposes of this definition,

1. a non-resident insurer that has a permanent establishment in Canada is deemed to be resident in Canada, and
2. credit unions and members of a mutual insurance group are deemed to be registrants.

PE of non-resident cannot make the election

16. Subsection 132(2) provides that where a non-resident person has a permanent establishment in Canada, the person is deemed to be resident in Canada in respect of, but only in respect of, activities of the person carried on through that establishment. This deeming under subsection 132(2) does not meet the residency requirement of the definition of "closely related group" for purposes of the election under subsection 150(1) since the corporation must be resident to make the election and the election applies to a corporation as a whole, not just to particular activities of the corporation carried on through a permanent establishment.

Filer should be named 1^st, and is the one with the earliest filing-due date

35. While there is no legislative requirement as to which member of the closely related group should file Form GST27 or Form RC7227, the forms are designed such that the first member identified in Part A of the form would be the member filing the form. If the parties to the section 150 election have the same reporting period and the election (or revocation) is to become effective in their current reporting period, either party could file Form GST27 or Form RC7227 as long as it is filed on or before the due date of their GST/HST returns for that current reporting period. However, if the due date of the return for the reporting period in which the election (or revocation) is to take effect is, in one party’s case, a day that is earlier than in the other party’s case, then Form GST27 or Form RC7227 must be filed on or before that earlier day, and the first party would ordinarily be the one to file the form.

Filing due date is that for the earliest required filer

Example 3

Corporation X is not a financial institution described in any of subparagraphs 149(1)(a)(i) to (x) and it has a quarterly reporting period based on calendar quarters. Corporation X must file its GST/HST returns no later than one month after the end of its quarterly reporting periods. Corporation Y is an insurer and a listed financial institution described in subparagraph 149(1)(a)(v). Corporation Y has an annual reporting period based on the calendar year (ending December 31) and must file its GST/HST return no later than six months after the end of its annual reporting period (that is, by June 30).

If Corporation X and Corporation Y wish to make a section 150 election to be effective on January 1, 2020, they must file the prescribed form on or before April 30, 2020; that is, by the due date of Corporation X’s GST/HST return for the quarterly reporting period that is January 1 to March 31, 2020.

Late election not accepted

36. Since subsection 150(3) specifies that the prescribed form for the section 150 election must be filed on or before the particular day that is the due date of the electing member’s GST/HST return for the member’s reporting period in which the election is to take effect, the effective day of the election cannot be a day that is within a reporting period for which the GST/HST return filing due date has already passed. Therefore, a Form GST27 or Form RC7227 filed after the particular day will not be accepted and elections filed late or requesting retroactive effect are not permitted.

Effective date must fall within the respective reporting periods for all filers such that no return is overdue

Example 4

Continuing with Example 3 above, if on the prescribed form Corporation X and Corporation Y specify January 1, 2020, to be the effective day of the section 150 election and they file the form on May 1, 2020, the form will not be accepted. In these circumstances, the earliest effective day that they may specify for the section 150 election would be April 1, 2020. This is because the effective day of the section 150 election must be a day that is within a reporting period where the filing of a GST/HST return is not past due for either of the parties to the election. In this example, the due date of Corporation X’s GST/HST return for its quarterly reporting period of April 1 to June 30 has not yet passed, since Corporation X would have until July 31, 2020, to file that return.